Morning Market Update

Stocks Gaining Ground Ahead of Holiday Weekend

The US equity markets are higher in early action of the final session before the three-day Memorial Day holiday weekend, as the bulls are trying to pare losses for the week that have come courtesy of continued euro-area debt uneasiness and concerns regarding a slowdown in the global economy. Treasuries are slightly lower, showing little reaction to mostly inline gains in personal income and spending, ahead of reports on consumer sentiment and pending home sales. Equity news is light, with Marvell Technology offering an upbeat outlook, which is overshadowing its 1Q profit and revenue shortfall. Overseas, Asia finished mixed, while banking issues are leading European stocks higher.

As of 8:49 a.m. ET, the June S&P 500 Index Globex future is 6 points above fair value, the Nasdaq 100 Index is 6 points above fair value, and the DJIA is 42 points above fair value. WTI crude oil is $0.82 higher at $101.05 per barrel, and the Bloomberg gold spot price is up $9.78 at $1,528.98 per ounce. Elsewhere, the Dollar Index—a comparison of the US dollar to six major world currencies—is down 0.8% to 74.98.

Marvell Technology Group Ltd. (MRVL $15) reported 1Q earnings ex-items of $0.29 per share, below the $0.30 consensus estimate of analysts surveyed by Reuters, with revenues declining 6% year-over-year (y/y) to $802 million, compared to the $826 million that the Street had forecasted. Revenues were also down 11% compared to 4Q. The chipmaker said its 1Q results reflected typical seasonality of its consumer centric end markets. However, shares are higher as the company issued 2Q EPS guidance that exceeded analysts’ expectations, while noting that 1Q was the low point in its revenue cycle.

Personal income and spending rise, sentiment and housing data later this morning

Personal income rose 0.4% month-over-month (m/m) in April, matching expectations of economists surveyed by Bloomberg, and March’s 0.5% increase was revised modestly downward to a 0.4% gain. Also, personal spending was 0.4% higher m/m in April, compared to expectations of a 0.5% advance, and March’s 0.6% rise was revised to a 0.5% increase. The savings rate came in at 4.9% for April, matching March’s downwardly revised rate.

Also, the PCE Price Index, which is released with the income and spending data, was up 2.2% y/y in April, inline with expectations, after March’s 1.8% increase was unrevised. The core PCE Price Index, which excludes food and energy, was up 0.2% m/m, matching forecasts, while y/y, core prices moved 1.0% higher, as expected.

Treasuries remain modestly lower following the personal income and spending data, with the yield on the 2-year note up 2 bps to 0.50%, while the yields on the 10-year note and the 30-year bond are advancing 4 bps to 3.09% and 4.26%, respectively.

Later this morning, the US economic calendar will yield the releases of the final revision to the University of Michigan’s Consumer Sentiment Index, forecasted to be unrevised at 72.4 for May, and pending home sales, expected to decline 1.0% m/m in April.

Please note, all US markets will be closed on Monday in observance of the Memorial Day holiday, and the bond markets will close early today.

Europe nicely higher as banks posting strong advance

The equity markets in Europe are solidly higher in afternoon action, led by a rally in financial issues following an analyst upgrade of the sector and after a report that global capital requirements facing the region’s banking sector could be less of a burden that initially thought. The Financial Times reported that banks in the European Union could evade part of the more restrictive Basel III capital requirements, citing an unreleased draft that could allow banks to count capital in their insurance subsidiaries that the global rules call for. The advance in the sector comes even as the festering euro-area debt crisis continues to weigh on sentiment. Meanwhile, basic materials are also gaining ground amid some strength in metals prices.

Elsewhere, the economic front in the UK is helping support the equity markets, with a read on the nation’s consumer confidence unexpectedly improving in May, while a separate report showed UK home prices rose more than forecasted this month. In other economic news, consumer prices in Germany came in flat for May, as expected, but a report on eurozone economic confidence this month deteriorated slightly more than economists had anticipated.

The UK FTSE 100 Index is 1.1% higher, France’s CAC-40 Index is gaining 1.4%, and Germany’s DAX Index is rising 0.6%.

Asia mixed as global concerns continue to limit conviction

Stocks in Asia finished mixed in the final trading session of the week as traders continued to grapple with euro-area debt concerns and uncertainty regarding the extent of the deceleration in the global economy. Japan’s Nikkei 225 Index declined 0.4% pressured by some weakness in automakers and a solid drop in shares of Sony Corp. (SNE $27) following its smaller-than-forecasted current full-year profit outlook it gave late-yesterday. Sony also posted a loss for the full-year the ended in March, due to a large write-off that stemmed from the earthquake and tsunami and multiple hacker incidents at its online PlayStation network that resulted in compromised client information. In economic news, Japan’s national consumer prices rose inline with economists’ forecasts in April, while excluding food and energy, prices declined as expected. Meanwhile, China’s Shanghai Composite Index fell 1.0% amid some pullback in risk appetites among traders.

However, there were some advances in the region, as South Korea’s Kospi Index gained 0.4% following some favorable trade data, and Australia’s S&P/ASX 200 Index rose 0.5%, with mining issues posting an advance. Finally, Hong Kong’s Hang Seng Index rose 1.0% to lead the way, aided by a strong gain in shares of Petrochina Co. (PTR $135) after its privately-held parent company China National Petroleum Corp. announced that it increased its stake in the energy company. After the closing bell in Asia, Fitch Ratings cut its outlook on Japan to negative from stable, citing negative pressure from rising government indebtedness.